The comments by Ted and John Galt illustrate well one of the problems of relying on internet boards and discussion groups, as opposed to using internet for ideas to be confirmed or rejected by other investigation.
What John Galt and Ted said, although apparently opposed, could both be true. It is also possible that going forward, both could fail, depending on a lot of things that they haven't shared with us, and a lot of other things that are not yet part of history. For example, plug in a portfolio 100% fixed income into the Fire calculator, take out $40,000 per year, and start with $5,000,000. No problemo! And more than a few people have $5,000,000, or need less than $40,000. So it seems unwise to dismiss out of hand the possible appeal and sufficiency of the all fixed income option. Since the Fire Calculator gives 100% probability of this portfolio succeeding 30 years, the principle of safety over final portfolio value would at least recommend a close look at this fixed income option.
As to Ted’s statement that he has followed Bogle’s ideas with success for 15 years, to me it is interesting, suggestive, but no sort of proof that that will be a good strategy going forward. Imagine a Japanese retiree in 1989, saying “ I have done extremely well over the past 15 years in the Japanese stock market, so I will keep my retirement funds there”. Good plan based on experience, bad plan as it would have worked out.
Even the calculators, conservative as they seem, are not necessarily so. To start in 1871, and take consecutive overlapping annual returns summed for 30 years, gives 111 runs, but in that data-set there are only 4 independent 30 year trials.
And we have the survivor bias to deal with. What if we were French? Or German? Or Japanese, or
We would have seen many complete wipeouts. I am not sure, but it is likely that the US and Britain are the only possible winners over these very long periods. But are we the same nation, occupying the same world position today as we were in 1871?
Ok you might say, use one of the Monte Carlo simulators. Again, no cigar. Because the parameters we take from the historical US experience suffer from many of the same problems as noted above for Fire-Calc.
In fact, it may be that the only real solid argument for equities comes from financial theory, the EMH, and CAPM. Historically and for reasonable theoretical reasons, short to medium term fixed income has just about preserved capital, before taxes. Taking risks should give us more.
Many of these points may or may not matter going forward. But I sometimes get the feeling that some Fire oriented discussion tends a little toward very precise but quite possibly wrong answers. We should probably think a lot more about the conditions assumed by these many calculators before we place too much faith in them.
I believe it remains true that the best strategy is to start with more money. Alas that requires more work. If we were interested in that, we might not be reading these boards!
Typographical note: I have given up trying to work around this very odd transform done by the auto-editor. Apparently it doesn't like apostrophes, or quote marks.
Mikey
